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Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI - SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/86Extract ..... h transactions. Thus, while the investors may find it convenient to avail the services of such online platforms, investors who are not clients of such intermediaries under the above specified Regulations may not have recourse or protection for the risks associated with respect to such transactions. Therefore, a need was felt to strike a balance between investor convenience and investor protection. 3. Pursuant to public consultation and discussions in the Mutual Funds Advisory Committee, it has been decided to prescribe a framework for Execution Only Platforms for transacting in direct plans of schemes of Mutual Funds. In this regard, the SEBI (Stock Brokers) Regulations, 1992 ( link ) have been amended and notified on January 17, 2023. 4. The comprehensive framework for Execution Only Platforms ( EOPs ) is specified at Annexure A to this circular. 5. The Stock Exchanges shall enact appropriate framework for EOP segment wherein the following requirements shall not be applicable for Category 2 EOP: a) trading rules applicable for equity, equity derivative and other segments b) Investor Protection Fund. c) rules applicable for clearing and settlement of trades relating to equity, equi ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x ..... . 1.4. The entity shall also facilitate non-financial transactions including change of email id or contact number or bank account details on its platform with respect to Mutual Funds. 1.5. The entity shall not provide services related to regular plans of schemes of Mutual Funds on its platform. 1.6. Any entity providing digital or online platform which facilitates transactions in direct plans of schemes of Mutual Funds, on or prior to this circular coming into force, shall apply for the relevant registration/membership, as the case may be, within 3 months from the date of this circular coming into force i.e., September 01, 2023. 2. Categories of EOP Any entity desirous of operating as an EOP shall obtain registration under one of the following two categories: 2.1. Category 1 EOP a) The entity shall obtain registration from AMFI. b) The entity shall be a body corporate. c) The entity shall act as an agent of AMCs and integrate its systems with AMCs and/or RTAs authorized by such AMCs, to facilitate transactions in Mutual Funds. d) The entity may act as an aggregator of the transactions in direct plans of schemes of Mutual Funds and provide services to investors/other intermediaries. ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x ..... ue diligence and ensure that investor signs a Rights and Obligation document as specified by Stock Exchanges before availing its services. 4.1.2. For Category 1 EOPs, the requirements with respect to on-boarding of investors shall be as specified by AMFI. 4.1.3. The responsibility of ensuring compliance with KYC requirements, with respect to transactions executed through both categories of EOPs by investors in Mutual Funds, shall lie with the AMCs. 4.2. Rights and obligations 4.2.1. As Category 1 EOP, the entity shall enter into agreement(s) with the AMCs which should clearly define their rights and obligations relating to EOP services. Further the entity shall have an objective, fair and transparent policy for providing execution services for products of AMCs. 4.2.2. As Category 2 EOP, the entity shall enter into necessary arrangements with the Stock Exchanges which should clearly define their rights and obligations relating to the EOP services. 5. Transaction and on boarding fees 5.1. As Category 1 EOP, the entity may levy a flat transaction fee (not ad-valorem ), if any, which shall be borne by AMCs, within the upper limit as specified by AMFI. On-boarding fees, if levied, shall ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x ..... e to time. 7. Grievance Redressal 7.1. For Category 1 EOPs, the grievance redressal mechanism shall be as prescribed by AMFI. 7.2. For Category 2 EOPs, the grievance redressal mechanism shall be as prescribed for Stock Brokers from time to time i.e., through SCORES, mediation and arbitration mechanism. 8. Handing conflict of interest The entities under both categories of EOPs shall ensure compliance with the following: 8.1. Maintain arm s length relationship, if performing multiple activities within the same entity, so as to avoid conflict of interest. 8.2. Maintain investor level segregation between EOP services and distribution services for Mutual Fund products, at the entity s group level. Thus, an investor at the EOP s group level may either avail EOP services for transacting in direct plans or distribu-tion services for regular plans of Mutual Funds. 8.2.1. For this purpose, the family of the investor shall be reckoned as a single in-vestor. The definition of group shall have the same meaning as defined un-der SEBI (Investment Advisers) Regulations, 2013. 8.2.2. The PAN of each investor shall be the control record for identification and in-vestor level segregation at the entit ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x ..... ring of data. 9.2.4. establish appropriate safeguards and procedures to deal with exigencies including malfunctions or erroneous use of their systems, or other unforeseen situations. 9.2.5. make their platforms available for transactions at all times, on a continuous basis. 10. Disclosure related requirements 10.1. Display of advertisements 10.1.1. The entity under both categories of EOPs shall not display any advertisement regarding any Mutual Fund scheme on their platform. Further, they shall not display any proxy/surrogate/common brand related advertisement on their platform. 10.1.2. With respect to advertisements of the EOPs on other websites/applications/portals/media/channels, the entity registered as Category 1 EOP shall ensure compliance with the advertisement code prescribed by AMFI and the entity registered as Category 2 EOP shall ensure compliance with the advertisement code prescribed by the Stock Exchanges. 10.2. Issuance of transaction receipt and alerts to the clients The entities under both categories of EOPs shall ensure the following: 10.2.1. On placement of transactions by investors, issue or display without delay, an electronic order receipt which shall include ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x ..... levant provisions including Chapter 16 of Master Circular for Mutual Funds dated May 20, 2023 regarding discontinuation of usage of pool accounts for transactions in units of Mutual Funds. 12. Maintenance of books of accounts, records, etc. Regulation 17(1A) of the SEBI (Stock Brokers) Regulations, 1992 provides that a Stock Broker in the EOP segment shall keep and maintain the books of account, records and documents, as may be specified by SEBI. Accordingly, as Category 2 EOP, the entity shall keep and maintain records as specified at Annexure A2 for a minimum period of five years. As Category 1 EOP, the entity shall keep and main-tain the books of account, records and documents, in the form and manner specified by AMFI. 13. Existing platforms 13.1. Existing platforms which are providing services similar to Category 1 EOPs such as platforms viz, MF Utilities India Pvt. Ltd., MF Central, platforms provided by RTAs etc., shall obtain suitable registration under one of the categories of EOPs within 3 months from the date of this circular coming into force. 13.2. As regards the platforms by Market Infrastructure Institutions such as the Stock Exchanges, which are mandated by SEBI, alt ..... x x x x x Extracts x x x x x Regulatory framework for Execution Only Platforms for facilitating transactions in direct plans of schemes of Mutual Funds - SEBI x x x x x Extracts x x x x x
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